Helicopter money: The best policy to address high public debt and deflation

Biagio Bossone, Thomas Fazi, Richard Wood 01 October 2014

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The G20 leaders may well endorse a higher ‘growth target’ at their November meeting in Australia, but they will be incapable of agreeing to the monetary/fiscal policy combination that is required to substantially lift aggregate consumer demand and economic growth. 

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Topics:  Monetary policy

Tags:  helicopter money, overt monetary financing, public debt, quantitative easing

Eurozone recovery: there are no shortcuts

Roberto Perotti 13 September 2014

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The consensus is increasing that austerity has not worked – Europe stands on the edge of deflation and suffers from a deficit of demand. A recent VoxEU proposal (Giavazzi and Tabellini 2014) offers a solution that is widely shared on both sides of the Atlantic – all Eurozone countries should cut taxes simultaneously by 5% of GDP, and the ECB should buy the extra debt without sterilisation. This should be accompanied by a credible plan to reduce government spending in the future.

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Topics:  Macroeconomic policy Monetary policy

Tags:  austerity, eurozone, monetary policy, helicopter money, quantitative easing, QE, stimulus, fiscal consolidation, fiscal policy, spending cuts, fiscal sustainability, debt monetisation

Is the ECB doing QE?

Charles Wyplosz 12 September 2014

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The 4 September announcement by Chairman Mario Draghi has been greeted with enthusiasm by the markets and the media. It has been long awaited, and many believe that the ECB has finally delivered. This is not sure. The ECB intends to buy large amounts of securities backed by bank lending to households (mortgages) and to firms.

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Topics:  Exchange rates Financial markets Monetary policy

Tags:  quantitative easing, QE, monetary policy, unconventional monetary policy, ECB, securitisation, bank lending, Europe, eurozone, Subprime, stress tests, deleveraging, recapitalisation, depreciation, exchange rates, euro, central banking

Quantifying the macroeconomic effects of large-scale asset purchases

Karl Walentin 11 September 2014

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Central banks have used various unconventional monetary policy tools since the onset of the financial crisis yet the debate continues regarding their efficiency. This column attempts to shed light on the ‘bang for the buck’, or the macroeconomic effects, of one such unconventional monetary policy – the Federal Reserve’s large-scale asset purchases of mortgage-backed securities employed during the Fed’s QE1 and QE3 programs.

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Topics:  Global crisis Monetary policy

Tags:  monetary policy, unconventional monetary policy, large-scale asset purchases, central banking, financial crisis, Federal Reserve, quantitative easing, mortgage-backed securities, term premia, zero lower bound, interest rates, US, UK, Sweden, mortgages, global crisis

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

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“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

How to jumpstart the Eurozone economy

Francesco Giavazzi, Guido Tabellini 21 August 2014

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The mantra is that once again it is up to the ECB to save the Eurozone. Quantitative easing is the last policy tool available to jumpstart the Eurozone economy. The longer the ECB waits before starting to buy government bonds, the further away will the recovery be. This analysis, however, overestimates the power of monetary policy.

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  ECB, monetary policy, fiscal policy, quantitative easing, public debt, aggregate demand, Eurozone economy, stagnation

Identifying and quantifying monetary policy transmission through bank balance sheets

Kaoru Hosono, Daisuke Miyakawa 09 August 2014

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How does monetary policy affect firm activities? While there is long-standing literature on this issue, the transmission mechanism of monetary policy is currently attracting renewed attention. The reason is that many central banks – including the US Federal Reserve, the Bank of England, the ECB, and the Bank of Japan – have introduced unconventional monetary policies such as quantitative easing and credit easing in the wake of the Global Crisis, and sooner or later will have to exit from these policies.

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Topics:  Financial markets Global crisis Monetary policy

Tags:  monetary policy, Japan, global crisis, quantitative easing, unconventional monetary policy, balance sheets, financial accelerator, credit easing, bank lending channel

What are the macroeconomic effects of asset purchases?

Martin Weale, Tomasz Wieladek 10 June 2014

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After policy rates fell close to zero in response to the global financial crisis of 2008-09, the scope for further conventional monetary policy easing was exhausted. As a result, both the Bank of England and the Federal Reserve embarked on large-scale asset purchases of government and financial securities (see Figures 1 and 2).

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Topics:  Monetary policy

Tags:  inflation, Federal Reserve, Phillips curve, Bank of England, quantitative easing, unconventional monetary policy, output

ECB: An appropriate monetary policy

Mickey Levy 16 May 2014

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Europe’s modest economic recovery and uncomfortably low inflation put the ECB in a bind. Although economic conditions are improving gradually (European Commission 2014), concerns about the potentially negative impacts of deflation persist (Armstrong et al. 2014). The ECB’s top near-term priorities are to avoid deflation (and apparently even sustained low inflation) and extend the economic recovery.

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Topics:  Monetary policy

Tags:  ECB, eurozone, monetary policy, quantitative easing, bank lending

Considering QE, Mario? Buy US bonds, not Eurobonds

Jeffrey Frankel 24 March 2014

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The ECB should further ease monetary policy. Inflation at 0.8% across the Eurozone is below the target of ‘close to 2%’, and unemployment in most countries is still high. Under the current conditions, it is hard for the periphery countries to bring their costs the rest of the way back down to internationally competitive levels as they need to do. If inflation is below 1% Eurozone-wide, then the periphery countries have to suffer painful deflation.

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Topics:  Macroeconomic policy Monetary policy

Tags:  ECB, euro, quantitative easing

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